Wal-Mart’s many Chinese suppliers have been warned that if they do not meet new social and environmental standards, allow audits and publicly disclose "appropriate" information they will be banned from making products for the firm.
Lee Scott, Wal-Mart’s chief executive, delivered the warning at a Chinese sustainability summit in Beijing on October 22 with 1,000 of the firm’s major suppliers, NGOs and politicians.
Mr Scott outlined new requirements on suppliers regarding social and environmental issues, a target to eliminate returns of defective merchandise by 2012 and a goal for the top 200 factories that it sources from to improve energy efficiency by 20% by 2012. Also by this date, suppliers must source 95% of production from factories receiving the highest audit ratings for environmental and social practices.
The move is the latest of several recent actions by Wal-Mart to stem criticism of its practices’ social and environmental impacts.
It comes amid a swell of concern over product safety following several scandals involving Chinese products. Last year 70% of product recalls in the US involved Chinese goods, according to the US Institute for Corporate Productivity. Recent notable cases include diethylene glycol-tainted toothpaste, lead-painted toys and leaded children’s jewellery. This summer contamination of baby food with melamine grabbed headlines worldwide after it killed four infants and left more than 50,000 ill in China.
A survey published in August by the US-based Pew Research Center found that in 19 of 24 countries studied, at least half of people surveyed say Chinese products are generally less safe than those produced elsewhere. Half of Britons and three quarters of Americans think Chinese products were inferior on safety.
Rather than diminishing enthusiasm for sourcing from China, Wal-Mart’s announcement suggests firms are likely to demand tighter controls when dealing with Chinese suppliers.
To improve transparency in the supply chain, Wal-Mart will require direct import suppliers and suppliers of own-label and non-branded products to provide the name and location of the factories they use. This will start with clothing and then be phased in for other product categories by the end of 2009.
A new supplier agreement will require factories to certify compliance with local laws and regulations along with "rigorous social and environmental standards".
Wal-Mart said it expects suppliers to "take ownership of compliance" in their factories and show they regularly and rigorously audit them. Wal-Mart itself will "step up and strengthen the company’s own unannounced audits and will require suppliers to allow third-party audits".
Wal-Mart’s own audits will have an increasing focus on environmental standards, covering emissions to air, waste-water discharges, management of hazardous substances and hazardous waste disposal. There was no mention of plans to monitor overall water use or to minimise waste arisings. Wal-Mart chairman Mike Duke said: "Make no mistake. If after a period of time if a factory fails to improve, Wal-Mart will move its business to suppliers who do comply and who do improve."
The agreement will be phased in from January 2009 in China for suppliers to stores in the US, Canada and the UK where Wal-Mart owns Asda. Three months later it plans to expand the requirement to other countries which provide goods to these three markets. By 2011 suppliers to all the firms’ retail markets will have to sign the agreement.
A series of goals for the firm’s superstores in China were also unveiled. They aim to halve water use and reduce energy consumption by 30% by 2010. By 2011, energy use by all energy-intensive appliances on sale will be cut by 25% and within two years all appliances will comply with the EU RoHS Directive which restricts certain hazardous substances in electrical and electronic products. Wal-Mart China also announced it had signed an agreement with the State Forestry Administration on a standard for responsible timber sourcing.
Wal-Mart Watch, a US campaign group set up to challenge the world’s largest retailer, commented: "While goals of increasing audits and working with independent auditors are lofty, revising the current standards is insufficient in comparison to the real problem: Wal-Mart’s infamous push for the lowest costs possible, no matter what."